BP’s Business Claims Higher Than Expected

In March 2012 BP reached settlements that covered the substantial majority of economic loss and medical claims relating to the 2010 Macondo oil spill. At that time, BP estimated that payouts related to these settlements would reach $7.8 billion, a figure that could be covered by the $20 billion Gulf Coast Claims Fund (GCCF) that BP created in Macondo’s aftermath. In fact, the GCCF can sufficiently cover $10 billion worth of settlement claims before BP would have to take another charge against future earnings.

Unfortunately for BP, it’s appearing that this $10 billion provision level is going to be tested, as the business claims amounts are coming in well above what the company anticipated. Last month, BP challenged how these economic loss claims were being calculated, arguing that distortions were resulting from how claimants were calculating their business’ profits. However, last week this argument was rejected by the U.S. District Court of Louisiana.

BP has said they will mount more legal challenges to this most recent ruling. Additionally, they have stated that even if they win this challenge, the cost of the March 2012 settlements will be “significantly higher” than the current $7.7 billion they have provisioned. For now, BP believes there is too much uncertainty to estimate what the final figure will be, which of course means analysts cannot forecast this with much accuracy either. It is assumed BP will book a $1 billion charge for the amount not covered by the GCCF.